Economic Beat

Jobs Growth Is Mediocre, Not Weak

The media find surprises and shadows in monthly employment reports, but growth has been merely mediocre, though not weak. And language sloppiness puts a wrong label on the Social Security "trust fund."

Thank You

Error.

What a difference a month can make in the media's rendition of the employment report released monthly by the Bureau of Labor Statistics. "Weak job gains cast shadow on U.S. economic outlook," read a Reuters headline of April 5, referring to the employment report for March. Happily, the Reuters write-up of Friday, May 3, was headlined "U.S. job market shows surprising strength in April," with the lead sentence noting that "hiring was much stronger than previously thought in the prior two months," thus lifting the "shadow" supposedly cast by the March report.

All these surprises and shadows are nonevents, mere reflections of statistical noise. Much as the media and markets would like to view a freshly minted monthly number as having the finality of a market close, such figures more closely resemble out-of-focus snapshots that will take more than a year to come into better focus as multiple revisions are issued.

Meanwhile, as I reported last month, by placing a few of the recent snapshots end-to-end, the most we could have concluded is that job growth through the first quarter of this year was not weak, but mediocre. A roughly similar judgment applies to the pattern established by the April report, released Friday.

Nonfarm payrolls rose 165,000 in April, and with upward revisions to prior months, average gains through the first four months of this year have run 196,000—a bit higher than the 179,000 average through calendar years 2011 and 2012. The unemployment rate was essentially unchanged at 7.5%.

There would seem to be enough drama in the economy without creating ersatz drama.

"THE SLOVENLINESS OF our language makes it easier for us to have foolish thoughts," wrote George Orwell in his 1946 essay "Politics and the English Language." A related essay on "Economics and the English Language" is long overdue, and could make it harder to have foolish thoughts about the economy.

Such an essay might, for example, cry foul at the use of the term "austerity" to describe prospective increases in government spending – and at the use of the label "American Taxpayer Relief" for a tax act passed early this year that resulted in no relief for any American taxpayer, and with tax increases for most. Such an essay might also marvel at that the persistent use of the term "trust fund" to describe the phantom sums, currently quoted at a whopping $2.7 trillion, supposedly held by the federal government to help pay for Social Security.

As far as the American taxpayer is concerned, there is no Social Security trust fund in the dictionary definition of the term. There might have been such a trust fund, however, had the government done things differently.

The trust fund is supposed to consist of the fruit of all the surplus money generated by the system's payroll taxes over the past few decades. And it's quite conceivable that, as with any pension fund to which future pensioners contribute, the money could have been invested in actual assets (say, sovereign debt of other industrial nations, plus high-rated corporate debt, foreign and domestic). And as needed, the government could sell those assets to meet the pension obligations.

But, as even those who insist there is a trust fund seem to know full well, the surplus money wasn't invested. Instead, the federal government spent it all to cover its soaring outlays. All the money is gone.

At the same time, however, the Treasury created bonds that it put into the so-called Social Security trust fund to reflect all the spent money. But to the Treasury, and hence to the U.S. taxpayer, these bonds are obviously not assets, but the very opposite: They are liabilities, just like any Treasury bond.

This is the sort of trust fund worthy of that iconic spendthrift Wilkins Micawber, in Charles Dickens' David Copperfield, who majestically repays a debt that turns out to be an elegantly written IOU. We can imagine him grandiloquently informing his offspring that they each have a trust fund worth a thousand pounds, based on surpluses he has earned over the years. But since Micawber, just like the government, would have blown all those surpluses on living expenses, instead of investing the money in assets, the junior Micawbers' trust funds consist of a lot of Micawber bonds—liabilities on Mr. Micawber, even though they would technically be assets to the Micawber offspring.

Similarly, it's technically true that the Treasuries are assets to the Social Security system. The government could by the same stroke create "trust funds" in the form of U.S. Treasuries for every other agency, department, and program likely to be around for the next several decades. As with the Social Security trust fund, however, that wouldn't change anything. It would merely impose future obligations in the form of liabilities on the U.S. taxpayer that would exist anyway. The bonds are mere memos-to-the-file—or as economist Milton Friedman once quipped, not IOUs, but I-Owe-Me's.